UK: Liens On Sub-Hire Under Standard Form NYPE 1946: Not Permitted

Last Updated: 5 December 2012
Article by Ed Mills-Webb and Chris Moxon

The New York Produce Exchange (NYPE) 1946 time charterparty form remains highly popular in bulk shipping. Following the High Court's decision in Dry Bulk Handy Holding Inc & another v Fayette International Holdings Ltd & another [2012] EWHC 2107 (Comm) ("BULK CHILE"), however, it is now clear that one of the key weapons in the owners' armoury when dealing with unpaid hire – namely the exercise of a lien on sub-hire – is unavailable on the standard wording of NYPE 1946.

Background

Clause 18 of the standard form NYPE 1946 stipulates that "the Owners shall have a lien upon all cargoes, and all sub-freights for any amounts due under this Charter". If the charterers' obligation to pay hire is as set out in clause 5 of the standard form, payment must be made by the charterers to the owners "semi-monthly in advance" – and if it is not so paid, the hire becomes an "amount due under this Charter", triggering the provisions of clause 18.

In those circumstances, the owners would be entitled to exercise a lien upon "all cargoes, and all sub-freights" for the hire due. This means that, rather than (or in addition to) persevering with their attempts to obtain hire from the charterers, the owners can insist that a voyage charterer that has contracted with the charterers must pay any freight owing under that voyage charter to the owners, rather than to the charterers.

The question that arises is this: what if the sub-charterers' contract with the charterers is a time charter, rather than a voyage charter? The amounts due under the sub-time charter will be sub-hire, not sub-freight, so can the lien over sub-freights permitted by clause 18 of NYPE 1946 be deemed to cover sub-hire?

This was one of the questions tackled by the High Court in "BULK CHILE".

Facts

The "BULK CHILE" was subject to a chain of three charters (between the owners (A) and charterers (B); the charterers (B) and sub-charterers (C); and the sub-charterers (C) and sub-sub-charterers (D)). The head charter (between A and B) was a time charter; the charter in the middle of the chain (between B and C) was a 'trip' time charter; and the charter at the end of the chain (between C and D) was a voyage charter. The two time charters in the chain were on the NYPE 1946 form.

A large amount of hire became outstanding under the head charter. Owners (A) invoked clause 18 and attempted to exercise a lien over sub-hire by sending a notice of lien to C. At the same time, A also attempted to exercise a lien over sub-sub-freight by sending a notice of lien to D.

C voiced concern to A about the validity of the notice of lien, and suggested that the parties set up an escrow account into which the sub-hire owed by C could be paid while the parties sorted out to whom the sub-hire should be paid. A rejected this proposal, and the matter proceeded to litigation.

The decision

The Judge held that A's arguments in favour of a lien over sub-hire had "considerable force", but ultimately felt bound to follow an earlier High Court decision on the same topic, namely the 1990 decision in "CEBU No.2". The Judge held, somewhat reluctantly, that the term "sub-freights" in clause 18 of the NYPE 1946 form could not be stretched to encompass sub-hire. Accordingly, A had no valid lien over sub-hire owed by C, but did have a valid lien over sub-sub-freight owed by D.

One of the main pillars of the decision in "CEBU No.2" was that, while the term "freight" had been used in the context of time charters well into the twentieth century, there had been a change in the use of the term "freight" in more recent times, such that it was no longer used to refer to hire payable under a time charter. The fact that many provisions of the NYPE 1946 form contained the term "hire" meant that the extension of the term "subfreights" in clause 18 to cover sub-hire would be a step too far. In other words, if clause 18 had been intended to cover sub-hire, it would have said so.

The decision in "CEBU No.2" had conflicted with an earlier High Court decision on very similar facts ("CEBU No.1"), so, up until the decision in "BULK CHILE", it was a matter for debate as to whether or not a lien on sub-hire under the standard form NYPE 1946 was possible. In following "CEBU No.2", the Judge in "BULK CHILE" has, subject to appeal, confirmed that a lien on sub-hire would not be possible under the standard form NYPE 1946.

Analysis

The decision has helped clarify an important issue, and although it has confirmed the limitations of clause 18 of NYPE 1946, the lien on sub-freights remains a powerful tool available to owners. The decision has, however, left other issues unresolved, including the potential impact of having differently worded lien clauses or conflicting jurisdiction provisions in the charterparties that constitute the chain.

For example, what would be the result if a lien clause in the charter between A and B permitted a lien over sub-hire but the lien clause in the charter between B and C did not permit any such lien? Would A be entitled to a lien over sub-hire owed by C to B, or could C successfully argue that no such lien should be recognised? Similarly, if the law and jurisdiction clause in the charter between B and C was different from that in the charter between A and B, could C succeed in arguing that any decision as to a lien on sub-hire owed by C to B would have to take place according to the law, and in the jurisdiction, agreed between B and C? In "BULK CHILE", the relevant charters had the same law and jurisdiction clauses and similar rights of lien, with the result that these further issues present, perhaps, some potential for debate in future cases.

An appeal from the decision in "BULK CHILE" is currently listed to be heard by the Court of Appeal in February 2013. Any developments regarding the issue of liens on sub-hire will be considered in a future update.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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